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General Motors has asked me to use the model I have developed of CAFE standards to model the economic impacts of the recent proposal by Senator John Kerry (D-Mass.). As I understand it, Senator Kerry has proposed raising the car standard by 12.3 miles per gallon (MPG) and the truck standard 9.0 MPG. It is apparently unclear in this proposal whether cars and trucks would be counted in the same CAFE “pool”, or in different pools as under current CAFE regulation.
To conduct this analysis I used the same model as my January 23, 2002 report, which I understand is now publicly available on the website of the Competitive Enterprise Institute (www.cei.org). I assume that CAFE standards were already binding in Model Year (MY) 1999, and the implicit CAFE tax was $1652 per MPG, as estimated in my model. I assume that the relevant period is the “long-run,” so that new technologies are available for firms to use to meet the higher CAFE standard. I also assume that cars and trucks are placed in separate CAFE pools.
The results of the model are presented in Tables One, Two, and Three below. The comparisons in the tables are both from what would occur where the CAFE standard to be kept at its present level (the MY 1999 equilibrium), and what would occur where CAFE standards to be eliminated. In the text here I only report the changes from the MY 1999 equilibrium.